"A community’s physical form, rather than its land uses, is its most intrinsic and enduring characteristic." [Katz, EPA] This blog focuses on place and placemaking and all that makes it work--historic preservation, urban design, transportation, asset-based community development, arts & cultural development, commercial district revitalization, tourism & destination development, and quality of life advocacy--along with doses of civic engagement and good governance watchdogging.

Monday, January 27, 2014

Applying the super-gentrification thesis to San Francisco, Santa Monica, and other cities experiencing hyper-demand

About 18 months ago I responded ("Exogenous market forces impact DC's housing market") to a piece in The Atlantic about the DC property market, stating that what potential residents like Megan McArdle saw as not making sense--significant appreciation of pricing in in-demand neighborhoods at extranormal rates--because the prevailing incomes in "the local real estate market" didn't support such pricing.

The highest wage earners are driving the market in the "best" neighborhoods, not average wage earners. The issue that she missed is that the the market is being bid up not by average wage earners, but by above-average wage earners, a smaller segment of the overall population in the metropolitan area, but a segment with extra-normal buying power and impact.

What's happening is that the real estate market in particular neighborhoods in cities like Washington is being reorganized within networks of global cities and within the landscape of metropolitan neighborhoods in a manner where the market dynamics are increasingly non-local.

What that means is a neighborhood like Capitol Hill isn't just competing with Petworth (and it isn't really, but that's another issue) and vice versa, but Capitol Hill, Georgetown and similar neighborhoods are competing with comparable neighborhoods in suburban Maryland and Virginia, etc. To understand price appreciation, you have to compare neighborhoods to like neighborhoods across jurisdictions.

Of course, this kind of dynamic is very much visible in places like London or New York City. For example, all of the highest value residential real estate markets in the UK are connected to Greater London ("The 43 areas where homes cost £1 million," Telegraph).

Instead of the issue of properties being bid up and held by non-residents--a problem in London, New York City and Charleston, SC, e.g., "Homes Dark and Lifeless, Kept by Out-of-Towners," New York Times--instead you have desirable neighborhoods being bid up by in-region residents with extra-normal incomes.

Activists are "protesting" against the buses as a way to call attention to escalating real estate prices in San Francisco, blaming this on Silicon Valley's high wage earners who choose to live in the city because it's cool, abetted by private transit to and from work..

The say that if Google didn't provide the buses, workers would choose to live closer to Menlo Park, and so there would be less demand for housing in SF, so that prices wouldn't be rising so fast. From the article:

Google argues that the protesters are gunning for the wrong target, because the buses alleviated traffic and pollution and because most of the employees who take the bus would live in San Francisco anyway.

Those claims were challenged by a study published last week by researchers at Berkeley, across the Bay from San Francisco ["Study: 40 percent of S.F. shuttle riders would move without chartered bus service," San Francisco Chronicle--note that the results are based on an extremely low sample size.] They found that rents around the stops used by the Google buses were up to 20% higher than in otherwise comparable areas. They also found that 30-40% of tech workers would in fact move closer to their jobs if the bus service did not exist.

What is happening in San Francisco is the same kind of supergentrification dynamic happening elsewhere, although San Francisco has long been a city with high real estate prices because of the high demand to live there. It's the same dynamic that Lees described in Brooklyn Heights.

At the same time, I have wondered why the City of San Francisco hasn't worked even harder to attract high tech companies to San Francisco proper, as a way to drive demand to fill up all that gnarly property on Market Street (pictured at right) and in the SoMA district that is empty and forlorn.

But that would further the demand and price appreciation for city residential properties.

So the usual proscriptions:

- build more housing
- inclusionary zoning to include more affordable housing in new market rate buildings
- rent control, which the city already has
- move to Oakland where property is still cheap "Oakland Turns A Corner As California Faces Budget Woes," NPR)
- and it takes less than 20 minutes to get to San Francisco once you're at a BART station

It is true that as long as people fight the addition of new housing to those places, prices will go up extranormally. It's a generational thing. The people who bought when prices were low can stay. People who rent won't be able to as they are outbid.

9 Comments:

In NYC and probably San Francisco prices are rising as a result of both national and international demand for owning houses and condos in these cities. The buyers are buying their 3rd or 4th "home". That said, I don't see any constitutional right to live in San Francisco.

There have been some interesting proposals made in NYC to raise property taxes and then rebate most of the increase for individuals who actually reside in the homes year round or at least long enough to be residents of NYS for tax purposes.

NYC its driven by people who work in NYC (leaving aside the small number of globally footloose)

In SF it is specifically people reverse commuting to Silicon Valley. It would be as if GTown and Logan Circle prices were driven by commuters to Tysons and Reston. That won't happen because Fairfax County is eager to get those folks, and is heroically attemping to turn Tysons into a WUP in order to do so.

Hmm, will have to look up the "ghost town" phrase. Haven't seen that turn of words. Nice.

2. Maybe it is a massive oversupply. OTOH, you could argue that the city has been undersupplied of such, compared to SFH. DK, just an idea.

3. And yep, SF isn't a perfect example. It's been high demand for a long time. But the point you make about rich rich people preferring to live in SF and driving up prices (not on the scale of Brooklyn Heights probably) is an example of Lees' concept.

Loser burbs don't have to be loser if they provide what folks want. For years SV people lived in SV, till WUPS became the fashion. Unless and until SV builds quality WUPs we have no idea how successful they would be in drawing people.

Given the prices, I would say there is no market evidence of an oversupply of 1BR condos near rail transit, or in other quality WUPs.

I think what Charlie is referring to is something I wonder about as well.

... what is the staying power for 1 bedroom condos as households change over time--coupling, kids, etc.--and as people move into larger units, will there be other small household units there to take up the slack and re-fill those units?

Given the singling trend, I think so, but probably some markets will be more resilient than others.

2. I agree with your point about how some suburban places are strengthening their quality of life (the "Build a Better Burb" website is all about that) and will retain residents, provide a quality experience for people who are cool with that level of experience, e.g., Clarendon vs. 14th St. vs. Takoma vs. Mosaic District vs. Reston vs. Vienna. There are a variety of segments of the market and some will do better than others over time.

I know that if I had a job around Reston, it could well be bike-able depending, and RTC has a lot going on. Building-wise it's less exciting than inner city environments, but activity wise it's competitive.

"what is the staying power for 1 bedroom condos as households change over time--coupling, kids, etc.--and as people move into larger units, will there be other small household units there to take up the slack and re-fill those units?"

Right now lots of houses in DC are group homes, and lots of 3br apts and 2 br apts are shared by roommates. If and when the market for housing in DC shifts from singles to families, the prices for the larger units will go up relative to the prices for smaller units, and singles who currently find roommate situations attractive for reasons of price (and not just cause they WANT to live with a roommate) will increasingly shift to the small units, releasing the larger units for the families. Thats why building ADU's, microunits, etc is in fact one of the best things we can do to increase the supply of housing for families.

About Me

I am an urban/commercial district revitalization and transportation/mobility advocate and consultant and a principal in BicyclePASS, a bicycle facilities systems integration firm, based in Washington, DC. Urban economic competitiveness is dependent on efficient transit and mixed use, compact places. Therefore, I end up writing mostly about mobility and urban design. While I am based in and write about Washington, DC issues, I try to write so that "universal lessons" are evident in the entries.